TT-829 -- Japan-related Aid Corruption in Asia Revisited, e-biz news from Japan

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

General Edition Sunday, November 23, 2015, Issue No. 829

- What's New -- Japan-related Aid Corruption in Asia Revisited
- News -- Legal development in Australia-Japan whaling stand-off
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Outlet shopping in Gotemba, Delicious kushi-katsu in Osaka
- News Credits

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+++ WHAT'S NEW

After the successful preliminary agreement on TPP (Trans-Pacific
Partnership), it seems that Japan is embarked on a "China-containment"
strategy that consists of three main prongs: trade-exclusion, military
rivalry, and SE Asian alliance building. The first prong is embodied in
TPP, which obviously excludes China, and in which Japan found enough
benefit that they sacrificed a number of holy cows (e.g., agriculture
and pharma IP control) to satisfy the demands of the other signing
countries. Handy that Abe and the LDP has such a stranglehold on the
nation's law-making bodies, he can force through any resulting legislation.

The second prong is that of military rivalry. While a confrontation over
the Senkakus or the Spratlys in the South China sea may yet lead both
countries to mutual harm, our guess is that there will mostly be
posturing and tense moments. Because both nations understand that there
is too much financially at stake to be openly at war. Still, it would be
good if Abe stopped stirring the military pot by keeping his nose out of
what is going on in the South China sea concerning the Chinese building
islands and air strips. Instead, he should leave it to the USA, Vietnam,
the Philippines, and other local countries to neutralize any threats posed.

For a good overview of what China is doing on Mischief Reef, Subi Reef,
and Fiery Cross Reef, read this excellent NY Times article:

http://nyti.ms/1MwTCrT

The third prong is alliance building. This area of activity is the
loosest in terms of action and results, but can basically be defined as
Japan's foreign aid and infrastructure financing program and how it is
implemented. It is in this sector that China and Japan are really at
"war", and there was no better illustration of how high the stakes can
be than when Japan lost what was considered to be a shoe-in bid for
Indonesia's bullet train project, to China back in September.

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[...Article continues]

The Indonesian project somehow became unraveled when the Indonesian
government declared that a high-speed train line was an inappropriate
use of public money, and priority should instead be given to helping the
nation's underdeveloped outlying islands. This forced the project into
the private sector, where the Japanese companies involved were suddenly
at a huge disadvantage because of their lack of access to safe funding.
The Chinese bidder on the other hand had full backing of its government
and financial institutions and was able to fund the project without
Indonesian state guarantees.

It doesn't take much to see that the Chinese outsmarted the Japanese on
this project, realizing about a year ago how to help their contacts in
the Indonesian government sidestep its obligations to Japan and gain a
shiny new high-speed rail service for no money down. We suppose that's
the benefit of having a much bigger base of bureaucrats with overseas
experience to draw from.

Anyway, Abe and co. were extremely miffed by this upset, and a couple of
days ago the PM announced that Japan will in the future provide
non-guaranteed loans to public organizations, providing there is
"sufficient involvement of the governments of those countries." The new
stance will mean that vetting loans will take just 18 months versus the
36 months it has taken to date, and more importantly, that loans can be
made without encumbering target country governments with "inconvenient"
guarantees. Japan plans to provide about US$110bn of such soft loans
over the next five years. Nice for those receiving such lavish attention...

Yeah, and nice for those in those governments who don't mind a little
bit of corruption, either.

A quick look on Google for the search terms "Japan International
Cooperation Agency" (JICA) and "corruption" reveal a broad range of
articles from independent journalists around Asia. JICA may not be the
instigator of the many allegations of corruption, but it sure does seem
to be at the center of them, facilitating as it does a huge flow of
funds into numerous poorly audited projects and the grasping fingers of
the actors behind them. For example, take the case of a flood control
project for Metro Manila (Philippines) which is being partly funded by
JICA and where the writer points out that the original topographical
study upon which all future construction will be based, is substandard
and full of mistakes.

http://bit.ly/1T9oO2K

Or this charge of corruption involving JICA-funded irrigation works in
Pakistan.

http://bit.ly/1X85icP

You can find tons of these examples on the web, although surprisingly
few of them get reported in the Japanese media -- probably because very
few international corruption cases are brought to trial in Japan.
Actually, the OECD had some damning words about Japan's lax attitude to
foreign corruption in its report in December last year, where it said
that, "The Action Plan (by METI in response to another damning OECD
report in 2013) fails so far to rectify misleading information on
'facilitation payments'..." and continued with, "...expects that METI
will not delay any further in making it clear in its Guidelines that
'facilitation payments' are not exempted by Japan's foreign bribery
offense."

In a nutshell, the OECD is saying that the Japanese bureaucracy needs to
make it explicitly illegal to pay bribes. Apparently at the moment it's
just "a bit naughty".

The same OECD report also pointed out that until 2013, there were just
three prosecutions since 1999 involving Japanese companies bribing
foreign politicians, versus almost 100 cases in the USA. In fact, the
U.S. Securities Exchange Commission (SEC) these days is eagerly
prosecuting Japanese companies that have businesses in the USA, for
paying bribes which are not even connected to the USA. This is both a
nice source of income for the SEC and a continuing source of
embarrassment to the Japanese government. For example, Hitachi was
dinged two months ago for "violating the FCPA by inaccurately recording
improper payments to South Africa's ruling political party in connection
with contracts to build power plants." In the end, Hitachi paid US$19m
to settle the charges. You didn't read that in the Japanese press did you?

Another entertaining case involves the target biting the hand that feeds
it. Faced with criticism over corrupt use of Japanese aid in a drainage
project, Cambodia's PM Hun Sen said this week that his government had
never received funds directly from Japan. Instead, he said, "...monies
were channeled directly into specific projects by Tokyo. The bidding is
taking place in Tokyo, and Japan controls the budget... if corruption
exists, the Japanese government should be criticized, not the Cambodian
government." The newspaper that carried that quote, the Phnom Penh Post,
said that JICA has previously attributed any budget discrepancies to
"currency conversions".

Cool... Ummm, or maybe not.

http://bit.ly/1Ob0RZ9 (original article)

The Japanese government and its JICA agency may not be directly involved
in corruption, but the flow of easy and significant funds to developing
countries is just too much of a temptation for the local authorities
involved. How to fix this is difficult to say, but clearly proper
auditing and legal penalties for the Japanese players is a starting
point. Yes, this is tough when you're up against a competitor like China
and where legal niceties are unlikely to be a major concern to them.
Still, without some serious carrot-and-stick action against Japanese
players in Asia, it's hard to see anything changing any time soon. Even
more so now that the Abe government is going to be pouring hundreds of
trillions of new yen into the region.

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***********************************************************

+++ NEWS

- Fortress to double-down on Japanese hotels business
- New ADB-Japan infrastructure fund
- Legal development in Australia-Japan whaling stand-off
- Fine-tuning tax for stock prices
- Gold KitKats

=> Fortress to double-down on Japanese hotels business

Fortress completed a US$1.1bn Japan-dedicated fundraise in October, most
of which will be allocated to buying and upgrading hotel assets in
Japan. In the last month alone the company had already pumped US$180m
into a variety of projects, and has many more lined up. ***Ed:
Interesting to see Fortress being so bullish on Japanese inbound
tourism, and a clear signal to other investors that they need to move
quickly to capitalize on the situation -- else they will get stuck
having to build assets from scratch. Equally interesting will be to see
the push beyond the major cities to more rural areas.** (Source: TT
commentary from reuters.com, Nov 21, 2015)

http://reut.rs/1NKKyNZ

=> New ADB-Japan infrastructure fund

Per our editorial today, the Japanese government is significantly
ramping up its competitive capability against China. The latest salvo is
a new US$16bn infrastructure fund created with the Asian Development
Bank (ADB) in the Philippines. The new fund will focus on urban
transport (bullet trains, anybody?), renewable energy, and other
infrastructure. Japan's JICA will inject US$1.5bn directly, and will
provide another US$5bn in co-financing for actual projects. ***Ed:
US$1.5bn sounds like a lot to set up a fund when the ADB already has
delivery capability internally.** (Source: TT commentary from
tribune.com, Nov 22, 2015)

http://bit.ly/1N3dHDv

=> Legal development in Australia-Japan whaling stand-off

Even as Japan is begging Australia to buy AUD50bn of submarines, she
also continues to aggravate an otherwise great bilateral relationship by
pursuing whaling in the Southern Ocean. But this last week has brought
an interesting development, where Kyodo Senpaku Kaisha, the
government-backed company that is responsible for the whaling in the
first place, has been found guilty and fined AUD1m for hunting whales in
Australia's Antarctic whale sanctuary. The sanctuary is an area that
extends 200km from Australian territory claimed in the Antarctic. Japan
maintains that the area is the High Seas, and so we assume the next
stage is that the plaintiff, the Humane Society International (HSI),
will seek enforcement of the fine and eventually to drag the Australian
government into the issue. ***Ed: This would seem an ideal time for
Australia's new PM, Malcolm Turnbull, to do a bit of horse-trading --
certainly something that the Japanese understand.** (Source: TT
commentary from csmonitor.com, Nov 18, 2015)

http://bit.ly/1PJ9ziz

=> Fine-tuning tax for stock prices

The Nikkei has floated a trial balloon on the behalf of the government
whereby the Financial Services Agency (FSA) is going to ask the Ministry
of Finance for a tax change that will allow inheritance tax discounts
provided for property to be extended to stock holdings as well.
Currently land holdings are taxed at 80% of the official appraisal and
buildings at 50-70% of construction cost. In the next 15 years,
approximately JPY100trn in assets are expected to be passed on as
inheritances. Therefore, if a 10% discount were applied to those
inheritances involving shares, JPY50trn that would normally be
liquidated to pay death duties would instead stay in stocks. ***Ed: If
this sounds like a shell game, it is. There is plenty of scope for the
government to goose the country's stock market and so encourage a bunch
more private investor money into more risky assets. A few months ago we
saw the world's largest pension fund, the GPIF, reconfigure its
investment portfolio for more exposure to stocks and thus unleashing
JPY2trn-JPY5trn of new funds into the markets. That had some effect, but
not enough to fuel the level of inflation that the government wants to
inflate away its debt obligations.** (Source: TT commentary from
nikkei.com, Nov 19, 2015)

http://s.nikkei.com/1P1NR9u

=> Gold KitKats

Since it's been a dark week for world news, it's fun to see Nestle Japan
continue building their KitKat brand by releasing a gold-leaf version.
Only 500 of the new gold-covered KitKats will be sold, with each finger
selling for US$16 each [Ed: Wonder if this means US$64 per packet?].
Nestle is doing a roaring trade with foreign tourists who enjoy the
unique flavors available in Japan, including green tea, wasabi,
strawberry, Okinawan pumpkin, and 26 other flavors. (Source: TT
commentary from theguardian.com, Nov 20, 2015)

http://bit.ly/21cfKj0

NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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Details: Complete event details at http://www.icajapan.jp/
Date: Wednesday, December 2nd, 2015
Time: 19:30pm to 22:30pm - Doors open
As a set menu it will include multitude of food including Beers, Wines,
Juices, Shochu and Soft Drinks etc.
Cost: 5,500 yen - Open to all. No sign ups at the door!!!!!!! First
registered will secure a place as seats are very limited
RSVP: By 4pm on Friday 27th November, 2015. Venue is Andy's Shin
Hinomoto at Yurakucho

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-----------------------------------------------------------

+++ CORRECTIONS/FEEDBACK

=> No corrections or feedback this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Shop at Gotemba's Premium Outlets, Shizuoka
Shuttle from Shinagawa for some shopping near Mt Fuji

Want to bring your wardrobe up to Tokyo fashion standards? Eager to
escape the capital for a day? You can do both on a trip to the Gotemba
Premium Outlets, located at the base of Mt Fuji in Shizuoka Prefecture.
There's no need to stress over train schedules or station transfers. A
direct bus runs from just outside Shinagawa station, leaving daily at
8:10am and returning at 6:20pm. The bus stop is located a few minutes'
walk from the Konan Exit (East Exit) of Shinagawa Station and is clearly
marked in English.

On the day I went, the bus pulled out promptly at 8:15am and, despite
all of the Tokyo area traffic, returned exactly at 6:20pm as scheduled.
While same-day seats are available on a first-come, first-served basis,
it's advisable to book ahead to avoid disappointment. Tickets can be
easily purchased and printed from the Premium Outlet's user-friendly,
multilingual webpage. The price is an incredible bargain at ¥2880 for a
round-trip ticket.

The bus deposits passengers at the edge of the West Zone. The Premium
Outlets boast 210 individual stores, divided into two zones - West and
East. The two areas are joined by a long pedestrian bridge that boasts
stunning views of Mt Fuji. At the entrance to the East Zone, don't miss
one of the most photogenic spots in the entire complex, where you can
snap a photo of yourself with Japan's highest peak looming over your
shoulder.

http://bit.ly/1SUgEul

=> Night Trip to Shinsekai, Osaka
Tips on direction and food

If you are going to Osaka, you must visit Shinsekai. It looks like a
pop-up town from an anime, with large neon lights and decorated
figurines. It is also well-known for a special kind of fried food called
Kushi-katsu which is really delicious. To get there, get off at either
Doubutsuen-Mae Station or Ebisucho Station. Note, though, that if you
come from Ebisucho, you will not see the pufferfish and other cool
decorations as you walk towards the tower.

The iconic food at Shinsekai is Kushi-katsu, which is actually anything
fried on a stick. It can be vegetables, meat, cheese or even mochi. The
batter is extremely crispy and you can dip the food into a bowl of
specially made sauce. Remember not to dip your stick more than once into
the sauce for hygiene's sake. The most popular restaurant is located
near the Tsutenkaku Tower and is called "Kushikatsu Daruma". There is an
English menu as well as instructions on the table. They have foreign
staff who can speak English to help you with your order. Kushikatsu
costs around ¥105-210 per stick and you get free-flow cabbage slices to
balance the fried food. You should be full after 10 sticks, so it is
very economical.

http://bit.ly/1QZhs2Q

***------------------------****-------------------------***

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END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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